Friday, May 15, 2015

Healthy
tree needs strong roots. Similarly, healthy economy also needs strong roots or foundations.
Four important economic foundations are (i) human, (ii) science and technology
(ST), (iii) capital, and (iv) system. Individually, human, ST and capital are
economic inputs while system acts as catalyst to utilize and integrate these
three inputs. This framework is conceptualized as four inter-related triangles
as in Figure 1.

Figure
1: The Four Economic Triangles

(1) Human

Generally,
“human” equal to labor (quantity aspect) and is merely one types of production
input. However, it is best to also view “human” as source of productivity
(quality aspect). Thus, its strength is measured by labor participation rate
(quantity), total factor productivity (quality) and Gross Domestic Product
(GDP) per person employed (quality).

Based
on Table 1, Malaysia Gross Domestic Product per person employed (GDP ppe) for
2012 is US$24,857. This amount is more than Thailand, Indonesia and
Philippines. Together with Malaysia, these four countries are formally known as
“Asian Tigers” for their fast developing economies. Malaysia’s GDP ppe is also higher
than the celebrated BRICS economies of Brazil, Russia, India, China and South
Africa. However, given consideration of the size of population of BRICS
countries and Indonesia, their economies are naturally bias towards
labor-intensive which are less productive compare to capital-intensive
production.

To
progress, we should look forward and benchmark ourselves with the better ones.
Thus, where is Malaysia as compared to the developed countries? Malaysia’s GDP
ppe level in 2012 has been achieved by Singapore since 1987, which is 25 years
ago! Japan, Germany, France, Australia, United Kingdom, United States, Spain
and Netherlands have achieved this level since the very first year of data
available. South Korea managed to get to Malaysia’s level since 1994. All these
indicated that two things. First, Malaysia still has a long way to go to reach
those productivity levels of developed nations. Second, Malaysia was on par
with Singapore and South Korea previously but is now far behind. Malaysia does improve
its productivity but still relatively too slow due to absent of fair
competition and meritocracy.

Table 1: Human Factor Comparison

Country

GDP ppe

(2012)

TFP

(2000)

LPR (%)

(2012)

Remarks for GDP ppe

Selected Asian countries

Malaysia

24,857

0.527

62.2

---

Thailand

16,764

0.284

78.2

Malaysia achieved this level since
1994

Indonesia

11,461

0.266

70.0

Malaysia achieved this level
since 1984

Philippines

8,667

0.284

67.0

Malaysia achieved this level
since #1984

Vietnam

6272

N.A

81.9

Malaysia achieved this level
since #1980

Singapore

49719

0.742

73.7

Singapore achieved this level
since 1987

Japan

44851

0.600

74.1

Japan achieved this level since
# 1980

South Korea

45478

0.565

65.7

South Korea achieved this level
since 1994

BRICS countries

Brazil

13557

0.46

74.9

Malaysia achieved this level
since 1991

Russia

19656

N.A

73.1

Malaysia achieved this level
since 2002

India

9200

0.246

57.9

Malaysia achieved this level
since #1980

China

15250

0.232

77.0

Malaysia achieved this level
since 1993

South Africa

14659

0.538

55.7

Malaysia achieved this level
since 1992

Selected developed countries

Germany

43243

N.A

77.4

Germany achieved this level
since # 1991

France

52535

0.768

70.7

France achieved this level
since # 1980

Australia

50652

0.825

76.4

Australia achieved this level
since # 1980

United Kingdom

49428

0.787

76.0

UK achieve achieved this level
since # 1980

United States

68374

1.000

72.0

US achieved this level since #
1980

Spain

43297

0.728

74.4

Spain achieved this level since
# 1980

Netherlands

46691

0.831

79.1

Netherlands achieved this level
since # 1980

Note:
All amounts for Gross Domestic Product per person employed (GDP ppe) are
measured in constant 1990 Purchasing Power Parity (PPP) US$. # indicates
earliest possible year where data is available. “N.A” indicates data “not
available”. Total Factor Productivity (TFP) is measured in relative to United
States (US), thus US’s TFP is benchmark at “1.000”. Labor forces participation
rates (LPR) are measured in term of percentage from total population aged 15 to
64.

Source:
World Bank for GDP ppe and LPR; United Nation Industrial Development
Organization (UNIDO) for TFP

Comparative
trend for Total Factor Productivity (TFP) is similar with GDP ppe trend. For
year 2000 (data latest available year), Malaysia has higher TFP than Thailand,
Indonesia, Philippines, Vietnam and BRICS countries except South Africa but
lower than all selected developed countries. Figure 2 shows that Malaysia’s TFP
was either higher or comparable to Singapore, Japan and Korea in the early
1960s but sadly lag behind thereafter.

Malaysia’s
labor participation rate was surprisingly lower than all selected countries for
this study except South Africa. As Malaysia has high literacy rate, free
schooling until secondary and ample higher learning institutions, this
indicates under-utilization of human resources. One of the most probable
reasons is low female labor participation. Yet, low labor participation rate
gives hope that Malaysia still has lots of room for improvement if we can
greatly increase female participation in labor forces.

(2) Science and Technology (ST)

“Science
and technology” has very broad coverage with various definitions. Insights from
World Bank’s definition for their variety of science and technology (ST)
indicators provide a good conceptualization. Thus, ST can be referred as “engagement
in the conception or creation of new knowledge, products, processes, methods,
or systems”. In economics perspective, capital intensive production implies higher
level of science and technology application as compare to labor intensive.
Therefore, a higher capital per labor (KpL) indicates higher level of ST. Other
selected indicator to analyze level of ST are “Scientific Journal (SJ)”,
“Research and Development” in term of number of researchers (RD) and
expenditure spent (RDE), patent filled in by resident (PR) and non-resident
(PnR). All those indicators are compiled in Table 2.

Table 2: Science and Technology Factor
Comparison

Country

KpL

(2000)

SJ

(2011)

RD

(*)

RDE

(*)

PR

(2012)

PnR

(2012)

Selected Asian countries

Malaysia

50,719

2,092

1,191

0.98

1,114

5,826

Thailand

33,863

2,304

332

0.25

1,020

5,726

Indonesia

12,711

270

90

0.08

541

5,297

Philippines

13,649

241

nil

N.A.

162

2,832

Vietnam

N.A

432

nil

N.A.

382

3,423

Singapore

174,196

4,543

6,226

2.24

1,081

8,604

Japan

145,955

47,105

5,153

3.37

287,013

55,783

South Korea

91,321

25,593

5,345

3.67

148,136

40,779

BRICS countries

Brazil

39,130

13,148

669

1.16

4,804

25,312

Russia

N.A

14,151

3,103

1.13

28,701

15,510

India

6,142

22,481

160

0.82

9,553

34,402

China

9,902

89,894

982

1.75

535,313

117,464

South Africa

21,534

3,125

379

0.85

608

6,836

Selected developed countries

Germany

N.A

46,259

3,923

2.83

46,620

14,720

France

141,771

31,686

3,784

2.23

14,540

2,092

Australia

132,446

20,603

4,280

2.40

2,627

23,731

United Kingdom

98,436

46,035

4,089

1.77

15,370

7,865

United States

145,688

208,601

3,936

2.78

268,782

274,033

Spain

120,319

22,910

2,851

1.36

3,266

209

Netherlands

134,430

15,508

3,231

1.92

2,375

338

Note:
“N.A” indicates data “not available”. “*”
indicates average 2008 to 2010. “SJ” is number of scientific and engineering journal
articles published in the following fields: physics, biology, chemistry,
mathematics, clinical medicine, biomedical research, engineering and
technology, and earth and space sciences”. Latest available year for United
States is 2009. “RD” is “professional researchers engage to do research and
development but includes postgraduate PhD students”, reported in term of “per
million people”. “RDE” is “expenditure on research and development” measured in
term of percentage to GDP. “PR” and PnR” are patents applications by residents
and non residents respectively; Data for Indonesia is year 2011.

Source:
United Nation Industrial Development Organization (UNIDO) for Capital per Labor
(KpL). World Bank for SJ, RD, RDE, PR and PnR.

Based
on Table 2, Malaysia is more capital intensive compares to Thailand, Indonesia,
Philippines and the BRICS countries. Yet, Malaysia is far behind developed
countries. For example, Malaysia KpL is more than three times less than
Singapore. Indeed, similar trends noticed for other indicators (SJ, RD, RDE, PR
and PnR). Malaysia is generally better than Thailand, Indonesia and
Philippines. Malaysia is far behind selected developed countries. Despite
greatly lower population than Malaysia, Singapore SJ more than double the
amount of Malaysia. Worst, Malaysia is also far behind BRICS countries in term
of scientific journal publications and patents registered.

Summary

Malaysia
is clearly better than Thailand, Indonesia and Philippines in almost all
aspects in both “human factor” and “science and technology factor” categories.
In addition, Malaysia is also better than those celebrated BRICS countries
(except Russia) in many aspects. Should we feel proud? We are aiming toward
becoming a developed nation. Thus, we should be benchmarking with developed
nations. Sadly, all data and analysis show that we are far behind them.
Malaysia, South Korea and Singapore were once about the same level. Now, those
two countries are far in front. What should we do? Mmm… just ignores Singapore
and proudly compares ourselves to Bangladesh and Myanmar!

[Chinese version published at Nanyang Press, 24th November 2014. Available online at http://www.nanyang.com/node/664434. This English version may be slightly different from the Chinese online/printed newspaper version]